Morgan Stanley stock took a hit on Thursday following reports of federal probes into its wealth arm’s client-vetting practices and potential money laundering risks. The Wall Street Journal revealed that the Securities and Exchange Commission, the Office of the Comptroller of the Currency, and Treasury Department officials are all involved in the investigation, which comes on the heels of a similar probe launched by the Federal Reserve in November.
The regulators are looking into whether Morgan Stanley has properly vetted potential clients and monitored their financial activity, particularly focusing on international clients. The SEC sent the bank a list of current and former clients, including a billionaire with ties to Russia who has been sanctioned by the U.K. Despite red flags, some clients managed to do business with the bank’s financial-advisor unit after being cut off from E-Trade.
In response to the probes, Morgan Stanley has invested in compliance, technology, and artificial intelligence to better analyze cash flows tied to its wealth business. However, the Fed has warned the bank that supervisory action may be taken.
The news sent Morgan Stanley stock tumbling 5.3% on Thursday, continuing its struggles to reach new highs since February 2022. The bank is set to report its Q1 earnings on April 16, alongside JPMorgan, Wells Fargo, and BlackRock. Investors will be closely watching for updates on the situation as it unfolds.